What to Watch Out for When Negotiating an Office Lease
When it comes to renting an office, many startups and entrepreneurs fail to consider the importance of the lease. Without proper understanding of what the lease covers (or not), businesses can find themselves floundering or even fail because of the lease.
Before signing an office lease, it’s imperative to thoroughly read through the entire document. You might even consider seeking out professional assistance if you’re unsure of the lease’s terms.
In this article, we’ve put together a list of things to watch out for when it comes to an office lease.
1). If There’s Something You Don’t Understand…
Never sign a lease if there’s any part that you don’t fully understand. We understand this is an exciting time for you and your business; however, signing a lease that you don’t understand could lead to major problems down the line.
Leases that are not understood or poorly negotiated can cause a serious drain on your budget. This is why it’s imperative to understand everything covered in the contract. If you’re in doubt, then it may be a good idea to seek out the help of a property lawyer to help you terms, vague points and more.
There are some landlords who make the terms of the lease difficult to understand or vague, hoping the new tenant won’t notice. However, don’t allow this to happen to you. Be sure to understand the entire document, and/or seek the assistance of a property lawyer to help you understand all the terms.
2). Rent Reviews
Rent reviews are normal in commercial property leases. You’ll often find them included if the lease is for a longer time period.
Rent reviews allow the landlord to raise the rent at specified intervals. That’s all they are. However, some landlords conduct rent reviews more often than needed, which can cost you more rent in the long-term.
Another fact to understand about rent reviews is that you may have the right to negotiate a lower rent, such as when market prices drop. This will be stated in the lease.
If you have any questions about the rent views, then again, it’s best to seek out the assistance of a property lawyer. They’ll be able to keep you from making a very expensive mistake and save you from dealing with an unscrupulous landlord.
3). Maintenance & Repairs—Watch Out for Traps
Another common issue in commercial leases is who is responsible for maintenance and repairs. Commercial leases are generally what’s called “fully repairing and insuring” leases. This just means that you, as the tenant, are responsible for repairs and insurance for the property you’re renting.
While this may seem clear, you need to fully read and understand the details before agreeing to the lease. The problem is that the term “repair” can be interpreted in different ways. So, it’s important to understand exactly what you’re responsible for. If not, you could find that you’re responsible for certain costs that you simply can’t afford and that you hadn’t planned ahead for due to the vague wording in the lease.
4). Extremely Long-Term Lease
An extremely long-term lease may seem like a great option for your business. After all, your company will have a place to call home for a long time. However, what many people fail to understand is that a long-term lease can tie you down, taking away the flexibility your company needs to grow. It can also mean your company’s stuck with space and/or a landlord that’s not working.
If a landlord tries to compel you to sign a long-term lease, it could be a sign they’re trying to keep you on the property. The goal is to keep you there and pay the rent, even if you need or want to move. This is a huge red flag that you could be dealing with an unethical landlord.
5). Lease Renewal
What happens if you’d like to stay at the end of your lease? What are the terms for a lease renewal? Does the lease auto-renew? These are important questions, so you’ll know the options available if you’d like to renew the lease or not.
Another issue to consider is whether or not the rent increases with the lease renewal. If so, what are the new terms for the rent? Avoid any situation that may lead to increased expenses you may not be able to afford when the time comes.
6). Tenant Improvements
Does the lease allow you to make improvements or alterations to the office space? And if so, then who is responsible for paying for these?
Many leases don’t allow the tenant to make alterations or improvements without the consent of the landlord. Be sure the lease includes a clause that allows you to make alterations or improvements with the landlord’s consent but ensure to include a statement that the consent shouldn’t be unreasonably withheld, delayed or conditioned.
7). One-Sided Lease Provisions
In some cases, landlords may use a form lease agreement, which is more for their own benefit than the tenant’s. For instance, watch for these clauses and provisions that are more favourable for the landlord:
- The landlord has the right to pass on increased operating costs (can include property taxes, building repairs, and more) without limit.
- A landlord may lease the office space “as is” or avoid responsibility for issues such as environmental laws, and more.
- The landlord may try to have the right to end the lease at their own convenience.
8). Shopping Around for Lease Rates
When you’re looking for the right office space for your business, it’s always a good idea to compare the lease rates. Many people tend to forget that they need to compare like with like. For instance, make sure the square footage is similar, and ensure the footage includes similar types of spaces. In some instances, a landlord may include public spaces, elevators, lobbies and bathrooms as part of the office space. So, when comparison shopping, be sure the areas include similar spaces, as well as square footage.
These are some important red flags to be aware of when reviewing a commercial rental lease. If at any point you feel pressured by a landlord, then it’s time to move on to another facility. And if you have any questions or find anything you don’t understand in a lease, then do seek out the help of a property lawyer. You’ll have a better deal in the long term, and won’t find yourself with unexpected costs down the line.
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